Background
Nigerian Free Trade Zones (FTZs) are designated areas where businessesare afforded favorable conditions, including reducedregulatory burdens and tax incentives to encourage investment and economic activity. However, it is imperative to emphasize that Companies doing business within these zones must comply with specific regulatory and environmental laws to uphold sustainable and prudent business practices.
Nigeria Export Processing Zones Authority (NEPZA) Act, 1992
- NEPZA is the central regulatory body responsible for overseeing the establishment, operation, and management of Free Trade Zones (FTZs) in Nigeria. It ensures that these zones operate efficiently and in compliance with national laws and regulations.[1]
- Under the NEPZA Act, companies intending to operate within FTZs must obtain a license from NEPZA. This license is essential for initiating and conducting business activities within the designated zones.[2]
- NEPZA assesses applications based on criteria such as the proposed business activities, economic viability, and adherence to regulatory standards.
Regulatory Compliance
- Licensing and Operational Requirements[3]
Companies wishing to operate within FTZs must obtain an operating license from NEPZA. This process involves meeting specific criteria related to business plans, investment levels, and operational capacities. Compliance with NEPZA regulations is mandatory and includes adherence to customs, immigration, and labor laws tailored specifically for FTZ operations.
Application for License
To apply for a license to operate in a Nigerian Free Trade Zone (FTZ), applicants must submit a completed application form and all required documents to the Authority or Zone Management.
Types of Licenses
The Authority/Zone Management can issue several types of licenses:
- Free Zone Developers License: This license is granted to public or private entities, or a combination of both, for the establishment, operation, and management of a Free Zone in Nigeria. The Nigeria Export Processing Zones Authority (NEPZA) supervises, monitors, and regulates these zones.
- Free Zone Enterprise License: This license is issued to enterprises for approved activities within a Free Zone, such as Manufacturing, Trading and Service Provision.
- Export Processing Factory/Export Processing Farm License: This license is granted to export-oriented manufacturing enterprises or farms located in the customs territory that can export over 75% of their production.
- Customs Regulations[4]:
Goods entering and leaving FTZs are subject to special customs procedures designed to prevent smuggling and ensure proper documentation. Although FTZs are exempted from import and export licenses, and also from custom duties and taxes, there are special Regulations governing the importation and exportation of goods into and from the FTZs, either by Sea, Air or Road[5]. The Nigeria Customs Service (NCS) collaborates with NEPZA to enforce these regulations, ensuring that goods are appropriately accounted for and that customs duties and other taxes are accurately assessed and paid where applicable.
- Immigration Laws[6]:
- Work Permits and Visas: Companies doing business within the FTZs must comply with Nigerian immigration laws.
- Foreign employees in Nigeria are required to obtain work permits and visas from the Nigerian Immigration Service (NIS). NEPZA oversees adherence to immigration requirements to facilitate lawful employment practices and ensure security within the zones.
- NEPZA offers various types of ordinary visas tailored to specific purposes, including Business, Tourist, and Visitors Visas for general travel. A Transit Visa is available for short stays during transit, while a Temporary Work Permit (TWP) is designated for short-term employment. For longer stays, the Residence Visa is provided. Each visa type serves distinct needs, ensuring appropriate documentation for different categories of visitors.[7]
- Documentation and Compliance: Companies doing business within the FTZs must keep accurate records of foreign employees’ work permits, visas, and residency permits.
- Labour Laws[8]:
- All employees, employers, and companies doing business within the Free Zones are subject to the provisions of the NEPZA Investment Procedure, Regulations and Operational Guidelines Regulation 2004[9], Nigerian Labour Act, 2004, the Nigeria Social Insurance Trust Fund Act,1992, and the Employee Compensation Act, 2010.
- The Nigeria Export Processing Zones Authority (NEPZA) is dedicated to promoting fair and just labor practices within Free Trade Zones (FTZs) to create a secure and positive work environment. This includes regulations on work periods, employment contracts, contract termination, working hours, dispute resolution, minimum wage regulations, and employee benefits.[10]
- Tax Incentive and Financial Compliance[11]:
Companies operating within Nigerian Free Trade Zones (FTZs) benefit from several tax exemptions. (See the previous article). However, the Finance Act 2020 mandates compliance with specific filing obligations. The Federal Inland Revenue Service (FIRS) now requires FTZ companies to file their tax returns annually, regardless of whether they have tax liabilities for the assessment year.
Additionally, employees within FTZs are subject to Pay-As-You-Earn (PAYE) taxes. Consequently, FTZ companies must deduct personal income tax from employees’ salaries and remit these amounts to the relevant tax authority within 10 days after the end of each month.
Furthermore, Free Zone Companies are required to:
- Register with FIRS and obtain a Taxpayer Identification Number (TIN);
- Maintain proper accounting records;
- Keep an accurate record of all employees;
- Deduct and remit PAYE taxes from employees’ salaries;
- Pay Company Income Tax on any profits generated from operations outside the free trade zone;
- Deduct and remit Withholding Tax (WHT) as applicable on transactions with companies operating outside the Zone.
Environmental Laws in Nigerian Free Trade Zones
Companies operating within the free-trade zone must comply with the applicable environmental pollution laws and regulations and ensure that pollution treatment facilities or other suitable devices are used to ensure that wastes and pollutants caused by their production processes are kept within tolerable limits as prescribed by applicable laws and regulations.[12]
Key laws and Regulations
- Federal Environmental Protection Agency (FEPA) Act, 1988[13]: This is the primary environmental law in Nigeria, establishing the Federal Environmental Protection Agency and outlining its powers and functions. The Agency shall, subject to the Act, have responsibility for the protection and development of the environment and biodiversity conservation and sustainable development of Nigeria’s natural resources in general and environmental technology, including initiation of policy in relation to environmental research and technology.
- National Environmental Standards and Regulations Enforcement Agency (NESREA) Act, 2007[14]: This law established NESREA to enforce environmental laws and regulations. The Agency’s mandate includes monitoring and enforcing compliance with environmental standards, promoting sustainable environmental practices, and ensuring that businesses operate within the legal framework designed to protect the environment.
- NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004[15]:
The Zone Authority is required to inspect and monitor the operations of anti-pollution devices and measures in a Zone in conjunction with relevant Government agencies and shall apply appropriate sanctions for breaches of applicable laws and regulations as provided by said laws and regulations.
Companies operating within the FTZs are required to implement effective waste management systems to handle industrial and commercial waste responsibly. This includes proper disposal and recycling of waste materials, as well as the treatment of hazardous waste. Pollution control measures are also strictly enforced to prevent air, water, and soil contamination. Companies must adopt technologies and practices that minimize their environmental footprint and ensure that emissions and effluents meet prescribed environmental standards.
Additionally, sustainable use of resources is a key aspect of environmental compliance within FTZs. Businesses are encouraged to adopt practices that conserve natural resources, such as energy-efficient technologies, water conservation measures, and the use of renewable energy sources. Sustainable resource use not only ensures compliance with environmental laws but also enhances the long-term viability and competitiveness of businesses operating within FTZs.
It should be noted that depending on the company’s objectives, it may be regulated by other special regulatory bodies and have additional compliance obligations. For instance, a company that desires to mine and process petroleum would be regulated by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). Similarly, a finance company within a FTZ will in some ways be regulated by the Central Bank of Nigeria (CBN) or a company that desires to sell its food and drugs products in the Nigerian Market would be regulated by the National Agency for Food and Drugs Administration and Control (NAFDAC)
Conclusion
Regulatory compliance and environmental laws in Nigerian Free Trade Zones are designed to create a balanced framework that promotes economic growth while ensuring sustainable and responsible business practices. Adherence to these regulations is crucial for the long-term success and credibility of businesses operating within these zones. By fostering a culture of compliance and sustainability, Nigerian FTZs can continue to attract investment, drive economic development, and contribute to the overall well-being of the environment and local communities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[1] Nigeria Export Processing Zones Authority (NEPZA) Act, 1992 https://nepza.gov.ng/
[2] Part 4 NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004
[3] Ibid
[4] Part 3 NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004
[5] Ibid
[6] Part 9 NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004
[7] Ibid
[8] Part 8 NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004
[9] Ibid
[10] Ibid.
[11] FIRS Public Notice of 15th April 2021 pursuant to the Provisions of Section 58 and 59 of the Finance Act, 2020
[12] Part 10 NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004
[13] Federal Environmental Protection Agency (FEPA) Act, 1988
[14] National Environmental Standards and Regulations Enforcement Agency (NESREA) Act, 2007
[15] Part 10 NEPZA Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004